International Cat Speculators Since 2006

Archive for the ‘money’ Category

A few days ago, I opened a newspaper to the “World” section and read a headline that said something like…

French Presidential Candidate Promises to end Austerity

Well, from that moment I knew who was going to win.

I mean, who’d vote for austerity? Pain, suffering and discipline aren’t exactly vote winners – never have been. Winston Churchill made his famous “Blood and Toil” speech, but that was in the face of an immediate and painfully obvious threat.

Actually, the current crisis is also painfully obvious. Governments have been spending more money than they’ve taken in as tax for years. Debt in many European countries is now at crisis levels. But bizarrely, some have convinced themselves that to rectify this situation, the solution is to increase tax, and avoid cutting spending. This in spite of the lessons of history, which tell us that the only sure way to balance a governments books is to cut spending, and the dubious net value of increasing taxes on a small, mobile, minority of “others”.

In addition to Greece – where the pro-austerity quislings have officially lost their majority – there was another important election today: France. And there, Socialist candidateFrançois Hollande has trounced Nicolas Sarkozy to become France’s first left-wing President in 17 years.

This is going to make a big difference. Hollande is opposed to austerity, so he’ll be running a better economic policy in France. But he’ll also be opposing German attempts to impose an austerity straitjacket at a European level – and that will be enough to make sure it won’t happen. The result is …[snip fantasy]

The markets are not going to like this of course (let alone the austerity cultists at the European Central bank), but they are just going to have to learn to cope. The people have spoken, and their message is clear: they are not willing to crucify themselves for the profit of bankers. Politicians elsewhere should take heed.

(The silly thing is that what the French have voted against isn’t austrity at all, but rather a few spending trims around the edge and hikes in taxes. So of course, these programs are going to crash the economies where they’re implemented. It’s just that “removing” such policies is actually going further down the same path and will thus make the situation worse.)

But let’s pretend for a while that it’s real austerity. Even then, there’s a small fly in the ointment.

“Wages not keeping up with inflation” that is the headline we get here. While I’m sure that will get a lot of people wound up and complaining about something, its a load of cr*p.

Actually looking through the numbers, we see that gross wage growth is roughly inline with the growth in consumer prices excluding GST. Why do this? Well the increase in GST was met with a corresponding cut in income taxes, so that NET wage growth is that much larger than gross wage growth.

National did increase GST, but overall they did not increase tax. So adding in the GST increase into inflation then claiming that wages did not increase by that amount is inherently dishonest.

After crying foul about National’s increase in GST, it’s a timely reminder that Labour’s concern for price creep is only a recent phenomena, having run inflation at a much higher average than during the 90’s – and for the same rate of growth as they inherited from National.

Investors in Allan Hubbard’s Aorangi Securities have been told they might get an initial repayment of up to three cents in the dollar later this month, but will have to wait till the middle of next year for any more.

The Government put South Canterbury Finance majority shareholder Allan Hubbard and his wife Jean under statutory management on June 20, with charitable trusts, Aorangi Securities, and later, Hubbard Management Funds.

That deserves a Tui Billboard – I was going for something more pithy, but this is almost a direct quote of what his supporters are saying, so I though it appropriate.

Chelsea writes: “To the kind man who stopped on the northwestern motorway to help a blushing girl last Friday at 5.30pm. I had foolishly run out of petrol, when to my surprise Mr Floyd Ormsby of ‘Supreme Miracle Clean’ turned up with a petrol can. He promptly filled up my car, tapped my roof and headed off on his way.You were a total saviour …”

I would suggest that any small businessman (especially those with large ads already on the sides of their vehices) keep a spare can of petrol handy. This fellow’s just landed a glowing endorsement in the country’s most read column, but at the very least a grateful motorist will mention you to several friends.

I’m guessing $10 of petrol is both a lot cheaper and a lot more effective than most advertising out there!

“I allowed two men into my home to demonstrate a cleaning system,” says Jan. “It turned out to be one and a half hours hard-sell of a vacuum cleaner. I told them I wasn’t in the market for a $3000 vacuum, so they packed up. One asked to use the toilet. Later, I found he’d sprayed all over the seat and the floor.”

One of the frustrating things about trying to have a sensible debate about the correct level of taxation in this country, is that whenever an MP talks about reducing the tax burden, left wing MPs allege their only motivation is self interest and play on the politics of envy by saying they are only promoting it so they will get x dollars more a week themselves.

It is rather absurd to see them try this against Don Brash yesterday, alleging he supported tax cuts so he would get $168 more a week himself. Hello – this is the man who took a pay cut of around $500,000 a year to become an MP. I really don’t think he did it to try and then claw back $168 a week in exchange.

It’s a good story to illustrate the way we talk about tax. But I was thinking the other day, that it could be improved by the addition of some actual illustrations – graphs.

So here goes.

——-

Every day, ten men went to a restaurant for dinner. They always ordered the same meals, and the bill for their food always came to exactly $100.00. They did this day after day, year after year, without variation.

They did not divide the cost of the bill up equally among them, however. Since some of the men were more wealthy than others, they all agreed that an equal split would be unfair to those with less money. So, the men decided to pay the bill in precisely the same way we all pay our income taxes.
The first four men paid nothing at all. They ate for free. The fifth man paid $1.00; the sixth paid $3.00; the seventh paid $7.00; the eighth paid $12.00; the ninth paid $18.00. And the tenth man, who was by far the richest of them, paid exactly $59.00, which was most of the $100.00 bill. He didn’t mind, however, since he could afford to pay that amount. All was well. The ten men were happy with this arrangement, and they continued to eat at the restaurant every single day, enjoying their time together.

So what does that look like?

From that chart, you can see exactly how most of the food is being paid for by the richest man – something that happens in progressive tax systems all over the world.

Then one day… the owner of the restaurant threw them a curve. As they stood at the counter to pay their bill, he announced that he would reduce the cost of the meals for them. “Since you are all such great customers, and I am so appreciative of your business,” he said, “I am going to reduce the total bill for your meals by $20.00. From now on, your ten dinners will cost you only $80.00.”

The men were pleased. But the situation did present a problem. How were they to divvy up the savings among them? Obviously, they could not simply credit $2.00 (one-tenth of the $20.00 savings) to each of the ten men, since that would mean that the first four men would actually be getting paid $2.00 to eat! No good. It only seemed fair that the first four men, who paid nothing to begin with, should likewise not get any of this $20.00 refund. But still, there was a problem. If they now divided the $20.00 savings among the remaining six men, that would be $3.33 per man. If that amount were subtracted from each man’s payment, then the fifth man and sixth man, who had been paying $1.00 and $3.00 respectively, would then be getting paid to eat. That wouldn’t work, either. No, the solution to this problem required some ingenuity.

Just then, the restaurant owner, who had been listening to the discussion, interrupted. He offered a solution. He suggested that the fairest way to settle this dilemma would be to reduce each man’s bill by the same proportion as he had been paying in the first place. The owner walked over to his calculator and figured out the amounts each man should pay. And so it was agreed.

The fifth man, instead of paying $1.00, now paid nothing, just like the first four men had always done. The sixth man paid $2.00 (reduced from $3.00); the seventh paid $5.00 (reduced from $7.00); the eighth paid $9.00 (reduced from $12.00); the ninth paid $12.00 (reduced from $18.00). This left the tenth man with a bill of $52.00, instead of his previous bill of $59.00. The men paid their bill according to this arrangement, and they left the restaurant, satisfied.

Again, here’s the graph.

So the bill looks the same, but with everyone getting a cut. The 5th man now gets his small bill reduced to zero.
Outside the restaurant, however, the men began to compare their savings. The sixth man started complaining. “I only got one dollar out of the $20.00 savings. That’s not much,” he said. He pointed to the tenth man and declared, “And he got $7.00. What gives? That’s not fair. He’s rich. He doesn’t need the money. Why did he get $7.00, when I only got $1.00?”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that the rich guy got seven times more than I did! I surely have a much greater need for money the he does.”

“That’s true,” shouted the seventh man. “Why should he get back $7.00, when I got back only $2.00? That stinks! The wealthy get all the breaks. The rich just get richer.”

“Wait a minute!” yelled the first four men in unison. “We didn’t get anything at all. Not one stinking cent! The rich fellow, who drives here every day in a Lexus, got $7.00, and we all take public transit to this restaurant, and we got nothing at all. This system exploits the poor.” With that, the men became angry. “And I lost everything,” said one of the four. “My wife left me, my daughter is in the hospital, and I can’t get work. I could sure use a break. Instead, I got not one lousy penny of the $20.00, and I have to watch this guy who’s filthy rich take $7.00 of it! I won’t stand for it!”

The nine men surrounded the tenth. Their anger mounted as they continued to express their resentment at what they thought was a supreme injustice. Finally, they lost control of their senses. They beat up the tenth man. They left him bloody in the street, and they went home.

Here’s how those men were viewing the price reduction

They’re right – most of the price reduction went to the 10th man and 9th man. But notice that it’s a pie graph, talking about differences in the old and new proportions rather than the proportions themselves?

The next day, the tenth man did not show up for their regular dinner. The nine men sat down and ate without him. But when it came time to pay the bill, they discovered something: they were $52.00 short! Needless to say, that was the last time those men ever ate at that restaurant.

I wish I could say that these nine men learned a valuable lesson, that they came to understand the principle upon which a tax cut is based. But they didn’t. They were too stupid to understand.

————————–

Here’s the graphs that they missed.

Proportion of the old bill to each man.

Proportion of the new bill to each man.

See that?The 10th man is actually paying a larger percentage of the bill with the new arrangement!

So let’s get this straight.

The reduction lead to no one paying more

The reduction reduced the bill to all who were paying

The bills of all the poorer men reduced absolutely and in proportion

The reduction moved proportionally more of the bill onto the richest man

There’s only one way to claim that the price cut, and our recent tax changes “benefited the rich”. That’s to talk about the tax cut

as though it were handing out money, rather than reducing a bill

as though the cut was a pie (proportional arrangement) itself, ignoring that it is a change to an existing proportional arrangement

but most importantly, it talks about a proportional cut to a proportional system in non-proportional terms.

That’s grossly dishonest.

By phrasing tax cuts in these terms, Labour and the left force more and more burden onto the richest man. They also demonize him as getting “more money” when taxes are cut across the board.

As the story illustrates, that’s very dangerous. It runs the sever risk that those being attacked will quite rationally decide that paying so much money to be the whipping-boy of society is stupid, and they will leave.

When that happens, we all end up worse off.

Now, I’m not saying here that we should give the rich a small tax burden. I’m simply saying that we should stop looking for ways to bash them, and start acknowledging that the vast majority of us are getting far more from the government than we pay in taxes, and we are bashing the people who make that possible.

they will conduct a review of the current business taxation regimes with the view of ensuring the system works to give better incentives for productivity gains and improved competitiveness with Australia.

This is political speak for “we’ll reduce the business tax rates to match Australia”.

Both Labour and United Future knew full well that this would end up bringing down the top personal tax rates too. I know this because I heard it explained as such by a United Future MP. You simply can’t have company rates lower than personal rates, because it opens a loophole for people to decrease their tax liability.

Had Labour been in power this term, there can be little doubt that they would be doing the same as National. Lucky for them, they’re not so they can now oppose the change that they started.

About this Blog

This Blog is the long time home of a blogger known across the internet as ScrubOne (That's Scrub One not Scru Bone). Where this handle has not been available, he is known as ScrubOneHD (HD for Half Done).

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ScrubOne confesses to the Christian faith, and conservative politics but does not necessarily blog according to public perception of either.

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